CHICAGO (CN) – A finance professor at Ohio State University “demonstrated a willingness to abandon the norms of his profession in the interest of his client,” Judge Posner said of Stephen Buser, whose two expert-witness reports were excluded in a contract dispute between an investor and a company that sold annuities.
The 7th Circuit held that Allmerica Financial Life Insurance & Annuity had breached its contract with Emerald Investments, but ruled that the damages award should be cut from $1.1 million to $150,000.
Allmerica improperly charged Emerald a $150,000 surrender fee when Emerald withdrew its money from Allmerica. It charged the fee because Emerald had been transferring huge sums of money – as much as $111 million at a time – between a money-market account and Allmerica’s Scudder International Fund for the purposes of arbitrage, the act of exploiting a price difference in the market by buying a commodity at the lower price and selling it at the higher price.
Allmerica argued that the damages awarded by the jury were either unforeseeable or “hopelessly speculative.”
Buser’s first report stated that Emerald would have made $150 million over the next 20 years had it been allowed to continue its market-timing trading.
Posner called that a “preposterous estimate” that ignores the transient nature of arbitrage, which eliminates an economic anomaly by exploiting it. Buser’s first report was “so irresponsible as to justify the (lower court) judge’s decision to exclude the second report summarily,” Posner wrote.